India bonds likely to gain on reports of tax cut for foreign investors

MUMBAI: Indian government bonds are expected to open with marginal gains on Thursday on media reports saying that the government plans to scrap capital gains tax on investments in government securities by foreign portfolio investors.

The yield on the benchmark 6.48% 2035 note is expected to trade in the 6.99% to 7.05% range, a private bank trader said.

It had ended at 7.0240% on Wednesday.

Bond prices move inversely to yields.

According to a report in The Economic Times, the government’s plan is part of efforts to draw capital flows into India, amid pressure on the South Asian nation’s currency.

Foreign investors currently pay 12.5% long-term capital gains tax on listed shares and bonds held for more than 12 months.

They also pay 20% withholding tax on interest earned in government bonds.

This may also be removed, the report said.

“On the face of it, this seems to be a decently positive move, but how much additional inflows this could attract remains a larger question,” the private bank trader said.

The development comes on the eve of the Reserve Bank of India’s monetary policy decision due on Friday.

Nearly 80% of economists in Reuters’ poll expect the policy repo rate to remain unchanged. Still, a growing minority is not ruling out the chance of a 25 basis point rate hike, includingprominent names such as Standard Chartered, Capital Economics and MUFG.

Meanwhile, the benchmark Brent crude contract stayed above $95 per barrel in early Asian trading hours, but eased from the previous session as Israel and Lebanon’s ceasefire agreement boosted hopes for a broader deal to end the US-Iran war.

Indian assets are highly exposed to swings in oil prices, with the country importing 90% of its crude needs.